National Fuel Gas Co. proposes freezing delivery rates

Also seeks higher return to split with consumers

National Fuel Gas Co. is asking state regulators to freeze its delivery rates for three more years, while allowing it to earn a slightly higher return from its utility operations through a program that would split any earnings beyond its target with its customers.

The portion of customers’ bills for gas delivery would not change under the plan, but fluctuating prices of natural gas and usage could affect what people pay.

The proposal to the state Public Service Commission would extend National Fuel’s current delivery rates, which took effect in 2008, through May 2016, while also increasing the company’s program to replace some of the older equipment in its network of pipes that bring natural gas to customers throughout Western New York.

“It’s a proposal to basically extend flat delivery rates and put in an earnings-sharing proposal,” said Donna L. DeCarolis, a National Fuel vice president. “The bottom line would be ongoing rate stability.”

National Fuel last raised its rates more than five years ago, when a $1.8 million increase went into effect. The company said it has since reduced its labor costs by about $7.5 million through a 4 percent reduction in its workforce from its 2008 levels, while also paring its property tax bill by about $3 million by challenging its property assessments. Changes to its employee health benefits also have saved National Fuel $2.8 million.

“The only realistic means of avoiding a rate case is by increasing our productivity and simultaneously cutting expenses,” said Anna Marie Celino, president of National Fuel’s utility business.

While National Fuel’s delivery rates – which cover the company’s operating costs and profits – have been flat, the average annual bills paid by its customers have fallen by about 33 percent since 2008 because of the plunge in the price of natural gas, which is sold to the utility’s customers at cost.

The average National Fuel residential customer’s bill, adjusted to account for fluctuations in temperatures, has dropped by 38 percent – from $1,738 in 2008 to $1,075 last year – because of falling natural gas prices that have resulted from the surge in production from shale gas formations, such as the Marcellus Shale in Pennsylvania.

Because of the drop in natural gas prices, the delivery costs consumers pay have become a bigger portion of their total bill. Delivery costs now account for 44 percent of an average customer’s total bill, up from 28 percent in 2008, when consumers were paying more than twice as much for the natural gas they used.

The proposal would allow National Fuel to earn a 9.96 percent return on equity, with any earnings beyond that split evenly between the company and its customers.

The earnings that accrue to customers would go into a fund that mainly would be used to offset the need for future rate increases. National Fuel’s current rate plan allows the utility to earn a 9.1 percent return on equity.

“It is more than fair for the company to retain some level of the benefits for its efforts,” National Fuel said in its filing with the PSC. “The utility only earns this incentive payment so long as it does a good job of reducing its operating costs or otherwise improves efficiencies.”

National Fuel, which has little opportunity to increase its utility revenues because of the shrinking Western New York population and because the vast majority of homes and businesses here already heat with natural gas, also is proposing that a portion of the earnings that could be shared with customers be used to subsidize extensions of its natural gas service to more remote portions of its service territory.

Those remote areas, where residents now heat with oil or propane, are too distant from National Fuel’s existing infrastructure to justify the expense of extending utility service to those areas without a subsidy, the company said.

It said it also would expand its investment in a program to accelerate its replacement of steel, iron and older plastic pipes and mains and other infrastructure. It also would focus more investment in flood-prone areas.